Chapter 3

4) For the three years from early 2002 to early 2005, the euro maintained a strong al steady rise in value against the U.S. dollar (USD). Which of the following were NOT contributing factor in the assent of the euro and the decline in the dollar? A) Severe U.S. balance of payments deficits. B) A general weakening of the dollar after the attacks of September 11, 2001. C) Large U.S. balance of payment surpluses. D) All of the above were contributing factors. 3.5 Exchange Rate Regimes: What Lies Ahead? 1) of the following, which is NOT a trade-off that must be dealt with in any exchange rate regime? A) Cooperation vs independence. B) Rules vs discretionary action. C) Dollars vs pounds. D) All of the above are rate regime trade-offs. True/False 3.1 History of the International Monetary System 1) Under the terms of Bretton Woods countries tried to maintain the value of their currencies to within 1% of a hybrid security made up of the U.S. dollar, British pound, and Japanese yen. 2) Members of the International Monetary Fund may settle transactions among themselves by transferring Special Drawing Rights (SDR). 3) Today, the United States has been ejected from the International Monetary Fund for refusal to pay annual dues. 3.2 Contemporary Currency Regimes 1) Based on the premise that, other things equal, countries would prefer a fixed exchange rate: Variable rates provide stability in international prices for the conduct of trade. 2) If exchange rates were fixed, investors and traders would be relatively certain about the current and near future exchange value of each currency. 3.3 Emerging Markets and Regime Choices 1) A currency board exists when a country's central bank commits to back its money supply entirely with foreign reserves at all times. 2) Dollarization is a common solution for countries suffering from currency revaluation